President Biden's student loan forgiveness plan would have wiped $400 million in federal student loan debt off the books and help over 40 million borrowers reduce their financial burden. However, the Supreme Court just ruled that the plan isn't legal, and therefore cannot proceed.
So, what comes next? Here's a rundown of what the president and his team could choose to do next to help borrowers deal with their financial burdens.
Image source: Getty Images.
Could Biden try again?
One option is to use a different legal strategy to show the President has authority to cancel student debt. The failed forgiveness plan relied on a law known as the HEROES Act that was passed in the wake of the 9/11 terrorist attacks that allows the education secretary to "alleviate the hardship that federal student loan recipients may suffer as a result of national emergencies." And since the COVID-19 pandemic was indeed a national emergency that was in effect at the time of Biden's forgiveness plan, the administration argued that the action was legal.
The Biden administration hasn't answered whether it's been working on alternate plans for debt forgiveness, but it hasn't denied it either.
So, the administration could take its legal strategy back to the drawing board and try to forgive student debt again -- either in the form of the same general forgiveness framework or a new plan altogether. However, a new forgiveness plan would almost certainly attract legal challenges and be subject to a drawn-out court battle. In short, the chance of broad student loan forgiveness anytime in the near future is slim.
Could the payment pause be extended again?
The student loan repayment and interest pause that went into effect in the early days of the COVID-19 pandemic has been extended several times, including an extension earlier this year as the Supreme Court announced it would take on the forgiveness plan.
However, that might not be an option anymore. The recent debt ceiling deal mandated that the payment pause end after Aug. 30. Shortly after it passed, the Department of Education confirmed that student loan interest would start accumulating once again on Sept. 1 and payments would be due beginning in October.
While Biden would face an uphill battle to extend the repayment pause again, it's entirely possible that there will be some sort of grace period for borrowers to contact their loan servicers and enroll in the repayment plan that is most beneficial for them.
There's more to Biden's student loan relief plan
When the Biden administration revealed its student debt relief plan in August 2022, the $10,000 in student loan forgiveness per borrower got the most headlines, and rightfully so. But it certainly wasn't the only thing in the plan.
In addition, Biden's plan also called for a new income-driven repayment plan that only required borrowers to pay a maximum of 5% of discretionary income on undergraduate loan payments (currently 10%). It also prevents unpaid interest from causing the loan balance to increase if the required payment isn't enough to cover it.
It was reported shortly after the Supreme Court's decision that President Biden was meeting with senior staff about student loans and is planning to announce new actions designed to help student loan borrowers. So, it's entirely possible that there could be a new plan in place by the time you read this, or details could emerge about these other aspects of the loan forgiveness plan.
